Markets Insight
  •  4/27/2021

Exploring Structured Annuities

By SIMON

Learn how this fast-growing segment delivers some of the market without all of its risk.

Annuities in Retirement Planning
The annuity market is a long-established one, with countless strategies designed to help you address saving and income challenges in retirement planning.  One challenge faced by many retirees, or soon-to-be retirees, regardless of market conditions is: "How do I participate in market growth, while reducing exposure to significant loss that I can’t afford at this stage in life?"

Structured annuities may help investors face that challenge. With increasing variety and flexibility in the marketplace, structured annuities can help strike a personalized balance between risk and reward—a balance that you select based on your evolving needs and objectives.

What Is a Structured Annuity?
A structured annuity is a long-term, tax-deferred financial vehicle used primarily in retirement planning.  It is designed to give you the opportunity to earn interest based on the market growth of a reference index or indices.

Structured annuities generally offer different crediting strategies, ranging across the risk-return spectrum, which are used to calculate the gains or losses on the reference index over a selected crediting period or term.

With the help of a qualified financial professional, you can select crediting strategies with the amount of upside potential and downside protection that best serve your retirement and legacy goals.

As each crediting period expires, you then have the ability to reallocate to a new type of crediting strategy for a new term. This flexibility allows you to meet changing financial objectives over the life of the structured annuity.

Structured Annuities are sometimes also referred to as registered index-linked annuities, variable-indexed annuities, indexed-variable annuities, or buffered annuities.

Finding the Balance
In a marketplace known for its diversity (and complexity), it’s helpful to visualize structured annuities amongst other deferred annuity offerings.

This illustrative landscape shows how structured annuities can be categorized between fixed and variable solutions given they:

  • Provide partial downside protection, however not the full protection that fixed annuities or fixed index annuities offer
  • Offer greater upside potential than fixed annuities, yet that upside can be capped, unlike variable annuities

How Structured Annuities Can Work for You
Structured annuities are a risk-reducing alternative for portfolio diversification, offering different indices, terms, and downside protection levels across the many crediting strategies available in today’s market.

In selecting a crediting strategy, it’s important to understand that the level of protection you choose directly correlates to the level of upside potential available.

In order to be assured you will receive the stated level of protection, you must hold the annuity contract until the end of its crediting period.

The above graphic is for illustrative purposes, does not represent all of the features available in the structured annuity market, and may include some terms and/or features that are not available in all states.

Crediting Strategy Illustration
Let’s see an illustration of how a crediting strategy works.

Assumptions: You make an initial investment of $100,000 in a structured annuity with the following terms:

  • Crediting Period: The duration of time used to calculate gains or losses on the reference index.
  • Cap Rate: A provision in a crediting strategy where a contract owner has the opportunity to participate one-to-one in the gains of the selected reference index up to a defined cap rate, over the specified crediting period.
  • Hard Buffer: A type of downside protection that absorbs a fixed percentage of the selected reference index’s losses over the specified crediting period and, after that, losses are one-to-one with the market.

Potential Investors
Structured annuities may be appropriate if you are in, or approaching, retirement and seek protection against unexpected market downturns that could be costly to your financial plan and security.  However, potential investors must be comfortable with putting principal at risk and making a long-term investment since withdrawals or surrender during a specified surrender charge period may be subject to fees and/or penalties.

Key Benefits

  • Potential for Market Growth: Participate in market upside, subject to the limitations of the crediting strategy.
  • Risk Management: Choose a level of partial protection on the downside.
  • Tax Advantages: Interest credited grows tax deferred until your earnings are distributed

Key Considerations

  • Structured annuities are complex, long-term investment vehicles and are subject to risk, including the potential loss of principal.
  • From term to term, available reference indices, renewal rates for upside features, protection options, and term lengths are all subject to change, at the carrier’s discretion.
  • Early withdrawals or surrender during the surrender charge period may trigger surrender charges, fees, or tax penalties, and may be subject to negative adjustments, which could be substantial.
  • Performance, payments, and guarantees are backed by the strength and soundness of the issuing insurance company and are subject to their claims-paying ability.

In order to find a structured annuity solution that can work for you, reach out to your financial professional and carefully review the structured annuity’s offering document, disclosure document, and buyer’s guide for important contract details, including fees and charges.

Want to learn more about managing market risk with confidence? If you’re a financial professional, contact us for a demo and if you’re an investor, ask your financial professional about SIMON.

You can also learn more about annuities and other risk managed solutions with articles and videos available on simon.io/engage.

©2021 SIMON Markets LLC. All Rights Reserved. | 2021.04

This is not intended to be an offer or solicitation to purchase or sell any security or to employ a specific investment strategy. This material is intended as general background information, for educational purposes only, and should not be used as a primary basis to make a decision to purchase an annuity contract. This material is being provided for informational purposes only and does not take into account any specific investment objectives or financial situation of any investor. The information is not intended as investment advice and is not a recommendation about managing or investing retirement savings. Actual structured annuity contracts may differ materially from the general overview provided. The crediting strategy illustration is hypothetical in nature, does not reflect actual investment results, and does not guarantee future results.

Prior to making any decision with respect to an annuity contract, purchasers must review, as applicable, the offering document, the disclosure document, and the Buyer’s Guide which contain detailed and additional information about the annuity. Any annuity contract is subject in its entirety is to the terms and conditions imposed by the Carrier under the contract. Withdrawals or surrenders may be subject to surrender charges, and/or market value adjustments, which can reduce your contract value or the actual withdrawal amount you receive. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty. Structured Annuities are not FDIC-insured. All references to guarantees arising under an annuity contract are subject to the financial strength and claims-paying ability of Carrier. This does not constitute legal, accounting or tax advice, and the recipient should consult with his or her legal, accounting or tax adviser regarding the instruments described in this material.

Securities products and services offered by SIMON Markets LLC, a broker-dealer registered with the U.S. Securities and Exchange Commission, a member of FINRA / SIPC. Annuities and insurance services provided by SIMON Annuities and Insurance Services LLC. Please visit www.simon.io for complete disclosures, including terms of use and privacy policy.

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